The Green Sheet Online Edition

August 25, 2008 • Issue 08:08:02

HMS' parent sold

On July 25, 2008, Humboldt Merchant Services LP's parent company, First National Bank of Nevada (operating as First National Bank of Arizona in that state) and its California-based affiliate First Heritage Bank of Newport Beach N.A. were declared insolvent by the U.S. Office of the Comptroller of the Currency.

The two banks, owned by First National Bank Holding Co., were closed, and the Federal Deposit Insurance Corp. was named receiver.

The FDIC's board of directors then approved a $3 billion purchase and assumption agreement with Mutual of Omaha Insurance Co. subsidiary Mutual of Omaha Bank (Mutual) to take over all deposits and certain assets of the financial institutions, including the wealth management and home owner association divisions.

Depositors in the money

The next business day (a weekend intervened), the banks' 28 offices reopened as Mutual branches. All depositor funds were made whole, including accounts with deposits higher than the FDIC's $100,000 insurance coverage limit.

"We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible," said Jeff Schmid, Mutual's Chairman and Chief Executive Officer. "Their deposits will automatically transition to Mutual of Omaha and we will be open for business."

According to a Mutual press release, the FDIC will retain most of the banks' loan portfolios.

The FDIC said this acquisition was the "least costly" resolution to the crisis. Mutual will pay the FDIC - which retains for future disposition the assets not included in the purchase and assumption agreement - a premium of 4.41 percent to assume all the deposits. Mutual plans to retain most, or all, employees it gained through the acquisition.

Ken Musante, President of HMS and a member of The Green Sheet advisory board, posted a letter on the HMS Web site reassuring constituents that the company is still separate, solvent and viable, and pledges continued commitment to customers and business partners.

"I would like to take this opportunity to assure you that our daily ongoing operations and management remain intact," Musante wrote. "The FDIC assumed majority interest in Humboldt Merchant Services to ensure our continued growth. This means our customers will continue to receive uninterrupted payment processing.

"Additionally, processing of funds have not and will not be impacted. Settlement and support will continue to operate as normal with no disruption in daily activities."

When asked what impact the takeover of these banks might have on the payments industry overall, Musante said he was not yet at liberty to speak on the record about the matter.

However, after the buyout is resolved, he intends to discuss its ramifications in an upcoming issue of The Green Sheet.

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